The valuation of ecosystem services

By harnessing recent results on the relationship between biodiversity and ecosystem functioning to an assessment of the valued services that people obtain from the natural environment, the Millennium Ecosystem Assessment (MA) has brought the analysis of ecosystems into the domain of economics. Ecosystem services are defined by the MA as the benefits that people obtain from ecosystems. Since the value of any asset is simply the discounted stream of benefits that are obtained from that asset, the benefit streams associated with ecosystem services may be used to estimate the value of the underlying ecological assets. Those assets are not the traditional stocks of resource economics - minerals, water, timber and so on - but the systems that yield flows of such things. This chapter discusses the value of ecosystems and ecosystem services. It identifies the main methods for valuing different types of ecosystem service, and the role of valuation in developing sustainability indicators. The sustainability of economic development requires that the value of the assets or capital stocks supporting development be maintained over time, and since capital includes produced, human and natural capital, it is important to understand how the value of ecosystems may be changing relative to the value of other capital stocks.